Abstract
Estimation of the actual and projected level of the neutral interest rate is a central issue in the application of modern monetary theory in the practical context of monetary policy. Views on the role and key drivers of neutral interest rates have evolved over time in parallel with the development of the theory of capital, money, credit and economic growth. Therefore, the paper is aimed at generalizing methods for assessing the neutral interest rate for open economies with emerging markets and formulating recommendations for improving the existing methodological tools for estimating the neutral rate in Ukraine. To achieve this goal, theoretical sources, advisory and research materials of international organizations, central banks and statistical databases were analyzed. It is established that the key issue of the current discussion about the tools for estimating the level of neutral interest rates in countries with small open economies is the relationship between the effects of external and internal factors. The paper identifies the advantages and disadvantages of the method for estimating the level of the neutral rate on the basis of uncovered interest parity rule used by the National Bank of Ukraine within the semi-structural macroeconomic model. The expediency of methodological tools introducing into the practice of monetary regulation of Ukraine for estimating the neutral rate of Ukraine based on the Laubach-Williams approach has been proved with adaptation to the conditions of an open economy, which will consider сinternal factors of economic development – changes in potential GDP and savings.
Highlights
Measuring the neutral value of money is a key element in the decision-making process on monetary policy in the modern practice of regulating monetary relations
The expediency of methodological tools introducing into the practice of monetary regulation of Ukraine for estimating the neutral rate of Ukraine based on the Laubach-Williams approach has been proved with adaptation to the conditions of an open economy, which will consider сinternal factors of economic development – changes in potential GDP and savings
Knut Wicksell, the author of the concept of a neu- tary policy of central banks began after the pubtral interest rate, noted that the devel- lication of Woodford (2003), who argued that the opment of economic processes with an interest gap between actual and neutral interest rates is a rate at a neutral level is balanced, since in such key channel of influence of central bank policies circumstances there is an optimal growth of on the economy
Summary
Measuring the neutral value of money is a key element in the decision-making process on monetary policy in the modern practice of regulating monetary relations. Positioning the level of the actual interest rate relative to its neutral level allows to assess the level of tightness of monetary policy, in particular, at certain stages of economic cycle This allows for targeted adjustments of monetary policy depending on the central bank’s mandate and current policy priorities. In the development of tools for estimating and forecasting the neutral interest rate, this has led to greater emphasis on accounting for factors of domestic demand and domestic savings Another problematic aspect of the estimation of the neutral interest rate is the different nature of factors affecting its dynamics depending on the stage of market development of the economy. In countries with underdeveloped markets, low incomes and structural problems, the efficiency of monetary transmission is lower This leads to a decrease in the penetration of international capital into processes in the real economy, reducing the influence of external factors of neutral interest rates in such economies. The purpose of this paper is to review the latest approaches to assessing the neutral value of money, summarize the key problematic issues of their application and formulate recommendations for improving the existing methodological tools in Ukraine for estimating the neutral interest rate
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
